The government may for the first time in about five years raise price of natural gas produced by state-owned firms like Oil and Natural Gas Corporation after the finance ministry and the Planning Commission backed the proposal for a 30 per cent hike.
The oil ministry has circulated a Cabinet note for raising price of gas under administered pricing mechanism (APM) from Rs 3,200 per thousand cubic meters ($1.79 per mmBtu) to Rs 4,142 per thousand cubic meters ($2.32 per mmBtu).
Price of APM, or the gas produced from fields given to ONGC and OIL on nomination basis, is proposed to be raised in stages to Rs 7,500 per thousand cubic meters or $4.2 per million British thermal unit by 2013.
"Power and fertiliser ministries are against the hike but the finance ministry and the Planning Commission are backing the proposal," a petroleum ministry official said.
"The plan will be put before the Cabinet for approval in 3-4 weeks time."
The official said the note based on the recommendation of the Tariff Commission, proposes that ONGC be paid Rs 3,875 per thousand cubic meters for the gas it produces while Rs 4,315 would be paid to OIL. Consumer price would be 10 per cent higher than this.
Consumer ministries of power and fertiliser feel that the hike would result in increase in feedstock cost but the finance ministry and Planning Commission were of the opinion that it would remove distortions in the market.
APM gas price were last revised in June 2005.
About 40 per cent of the nation's 140 million standard cubic meters a day of gas output is sold at administered price. And hike in rates of these is an attempt to reduce distortions in a market with more than a dozen rates.
The government has set $4.2 per mmBtu as the sale price of gas from Reliance Industries' eastern offshore KG-D6 fields while the gas from BG Group-operated Panna/Mukta Tapti fields is sold at $5.73 per mmBtu.
State-owned ONGC lost a whopping Rs 4,745 crore (Rs 47.45 billion) in revenues on selling 17.71 billion cubic meters of natural gas at a rate below production cost in 2008-09.
"In 2008-09, our cost of production was Rs 5.87 per cubic meters. Against this our actual price realisation was just Rs 3.191 per unit," a top ONGC official said.
The proposed prices are in line with the Tariff Commission recommendation, which in 2005 suggested a producer price of Rs 3,600 per thousand cubic meters to ONGC and Rs 4,040 per thousand cubic meters to OIL.
On top of this, the price would change by Rs 55 per thousand cubic metre for every 10 points change in Wholesale Price Index.
Based on the rise in WPI, the producer price currently comes to Rs 3,875 for ONGC and Rs 4,315 for OIL.
The rates proposed do not include royalty paid by these firms to the government.
Source: business.rediff.com
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